Quick Facts

Uzbekistan’s economic freedom score is 51.5, making its economy the 152nd freest in the 2018 Index. Its overall score has decreased by 0.8 point, with lower scores for the judicial effectiveness, trade freedom, and government integrity indicators outweighing improvements in business freedom, labor freedom, and monetary freedom. Uzbekistan is ranked 37th among 43 countries in the Asia–Pacific region, and its overall score is below the regional and world averages.

Doubly landlocked Uzbekistan has a long history of corruption, protectionism, and government intervention in various aspects of the economy that has hampered growth. The new government is aware of the need to improve the investment climate and is taking incremental steps to reform the business sector, float the exchange rate, offer financing and tax advantages to potential foreign investors, and remove some capital controls. The rule of law remains very weak, damaged by a very deficient legal framework.

Background

Islam Karimov ruled Uzbekistan with an iron fist and maintained its Communist-style command economy from the late 1980s in the Soviet era until his death in 2016. His successor, former Prime Minister and current President Shavkat Mirziyoyev, has shown some willingness to reform and establish better regional relations. Only 11 percent of the land is cultivated, which is made possible by irrigation from rivers in the rich Fergana Valley along Uzbekistan’s eastern borders, where the rural agricultural communities are among Central Asia’s most densely populated areas. Uzbekistan is the world’s sixth-largest cotton producer, but unsound cultivation practices have degraded the land and depleted water supplies. The economy also relies on exports of natural gas, gold, cotton, and refined copper.

All land in Uzbekistan is owned by the state. Property ownership is generally respected, but there is no general system for registration of liens on chattel property. The judiciary is heavily influenced by the executive. Police, security services, and judges interpret the laws as they choose or according to political dictates, leaving little recourse to appeal. Corruption is pervasive.

The top personal income tax rate is 22 percent. The top corporate tax rate has been cut to 7.5 percent. Other taxes include value-added and property taxes. The overall tax burden equals 18.9 percent of total domestic income. Over the past three years, government spending has amounted to 33.9 percent of total output (GDP), and budget surpluses have averaged 0.5 percent of GDP. Public debt is equivalent to 11.6 percent of GDP.

Uzbekistan’s economy is controlled by the government to a large extent, although a few reforms have incrementally improved the business environment in recent years. Heavy tax burdens and debilitating trade restrictions drive many employers to use the informal economy when employing workers. The government effectively subsidizes many basic staples, such as petroleum products, fertilizers, natural gas, utilities, and bread.

Trade is moderately important to Uzbekistan’s economy; the combined value of exports and imports equals 42 percent of GDP. The average applied tariff rate is 8.7 percent. Nontariff barriers significantly impede trade. Investment in many sectors of the economy is restricted, and bureaucratic barriers deter foreign investment. The financial sector is subject to heavy state intervention. The banking sector’s limited capacity and high costs hurt the private sector.